Lapid, Netanyahu near deal on 2015 budget

Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid are set to meet one-on-one on Sunday with the goal of finalizing the 2015 budget proposal, which is likely to include an additional 6 billion shekels (some $1.7 billion) in defense spending.

Yesh Atid party chief Lapid, who has been sparring with Netanyahu over the terms for weeks, said Saturday that Israel was now able to produce a budget that, even after a year that saw the longest military conflict in 30 years (against Hamas), would not harm social welfare programs, “will not include new taxes,” and will feature clauses to improve education and housing availability.

Lapid has managed to square the financial circle, analysts said, by building a budget that will see the national deficit rise to 3.5 percent of gross domestic product — a setback he himself opposed during campaigning for the 2013 elections, when he described raising the deficit as “a loan taken by my generation from yours (the younger generation), that nobody has a clue about how to repay.”

Finance Ministry officials, Bank of Israel head Karnit Flug, and Netanyahu have hitherto publicly opposed raising the deficit above 3%.

The prime minister has also been pushing for an additional NIS 20 billion ($5.5 billion) to be allocated to the defense establishment — NIS 9 billion to cover the costs of Operation Protective Edge and NIS 11 billion for upcoming expenses.

Lapid has threatened in past weeks to pull out of the governing coalition if taxes are raised, and has repeatedly pledged that the costs of the 50-day military campaign will not be covered by a tax increase.

The exit of Lapid’s 19-seat Yesh Atid from the coalition would likely necessitate early elections. Lapid’s declared optimism Saturday about a budget deal was seen as an indication that he does not seek to bring down the government.

The Treasury said in a statement last Sunday that an earlier version of the 2015 plan “responded to the needs of the Defense Ministry as well as social and civil needs,” but stressed that the security funds must be added “while staying within the prescribed expenditure framework.”

With regard to taxes, the Finance Ministry maintained that “in light of indications of slowdown of economic activity, it would not be right to raise taxes.”

The country’s top defense brass, including Defense Minister Moshe Ya’alon, IDF Chief of Staff Benny Gantz and Defense Ministry Director General Dan Harel, presented its budget request to the security cabinet three weeks ago during its weekly meeting, the first since Operation Protective Edge ended with an open-ended truce, stating that in order to meet the objectives the government has set for them, including ensuring the security of southern Israel, the defense forces would require more funds.

Earlier this month, the cabinet approved a proposal for slashing ministry budgets in order to help pay for the recent Gaza operation, the direct cost of which was estimated at NIS 9 billion (about $2.5 billion). The cabinet voted to slash the budgets of all ministries except defense by 2 percent to make up some of the money, while Lapid called for heavier borrowing instead of tax raises to cover the rest.

Marisa Newman and Times of Israel staff contributed to this report.